Momentum builds in UK for major ramp-up in shale development

Hurdles remain, but plans for several shale exploration wells are under way as the industry pushes toward high-volume hydraulic fracturing

By Linda Hsieh, Managing Editor, and Eva Vigh, Editorial Coordinator

UK shale highlights

Operators are moving toward being able to test initial flow rates, which will be critical to assessing the commercial viability of unconventional resources.

Public opposition and a slow permitting process are hurdles that still must be overcome before large-scale fracturing can be achieved.

An industry charter has been created to ensure local communities financially benefit from shale development; UK government is also considering a shale wealth fund.

The UK oil and gas industry has long been nursing its nascent unconventional and shale market, but some believe that 2017 could finally be the turning point. The work of several operators, including IGas, Cuadrilla, Third Energy and INEOS Shale, is expected to result in the drilling of several unconventional wells in the second half of the year. Further, the UK may start to see high-volume hydraulic fracturing by the end of the year, said Corin Taylor, a Director at UK Onshore Oil and Gas (UKOOG), a trade association representing the country’s onshore oil and gas industry. “That will be a major step forward for the industry,” he said.

The conditions are ripe for UK unconventionals, as well, as the nation prepares for its exit from the European Union. Stephen Heidari-Robinson, who served as Advisor on Energy and the Environment to Former UK Prime Minster David Cameron from 2015 to 2016, noted that many people who voted for Brexit are those who have been economically disadvantaged. “The worse off people are, the more likely they are to have voted for Brexit,” he said.

The UK’s highest percentage of economic inactivity is concentrated in Northeast England. Image courtesy of the Oil and Gas Authority.

It is these same people who will suffer disproportionately from Brexit, he added, noting the devaluation of the British pound that has already occurred since the Brexit vote in June 2016. “All of these things that we buy from foreign currencies – food, oil, cars, holidays – are going to cost proportionally more, and those things are already a higher proportion of poor folks’ incomes,” he continued. “By definition, those guys are going to suffer more from this.”

With this in mind, Mr Heidari-Robinson pointed out that the locations of UK shale gas resources show a remarkable match with the regions of the highest unemployment and economic inactivity in England – in the north. “It’s actually a pretty decent correlation with where the shale gas is in England… It’s where folks voted for Brexit because they didn’t have jobs or were struggling to get by,” he said, adding that approximately 50,000 jobs could be created at the peak of the unconventional and shale market. In addition, he pointed out that “making the gas we use, predominantly for heating, here is manifestly better for carbon emissions than shipping liquefied natural gas to the UK.”

The northern regions are also where most of the country’s shale gas resources are estimated to be located. It is increasingly recognized that development of these resources could bring an economic boom to these communities. Image courtesy of the Office for National Statistics.

Operators who are focused on onshore resources are, for their part, pushing hard to get the market going. “We want to get our shale gas drilling under way as quickly as possible because we see that as having significant potential for the UK’s energy security,” said Kris Bone, Well Engineering Director at IGas, a UK-based oil and gas company. To date, IGas has drilled three shale wells in Northwest UK, although none of them are currently producing. The company’s 2,400-2,500 bbl/day production stems entirely from approximately 100 conventional onshore wells.

That could change soon, however, as IGas expects to commence drilling two exploratory shale gas wells in Nottinghamshire, in England’s East Midlands region, toward the end of 2017. Further, appraisal wells are being planned for the Cheshire Basin in Northwest England. IGas shot both areas with 3D seismic in 2014 and 2015, respectively, and has secured planning approval to develop the two Nottinghamshire sites, Tinker Lane and Springs Road, with drilling expected to begin later this year. The two exploratory wells will likely be drilled to between 2,000 to 3,500 m in depth. Initial vertical wells are being planned, as the operator still needs to evaluate the proximity and thickness of the shales. “We’re really at the stage where we’re trying to understand the resource, but we hope to move through that quickly toward horizontal drilling and fracture flow tests,” he said.

In 2014, IGas drilled a vertical exploratory well in the Ellesmere Port area in Cheshire, England. Preliminary well results confirmed 1,400 ft of shale. The company is now planning to drill appraisal wells in this region.

Although IGas does not have any rigs under contract at this point, it expects to start looking for a suitable rig later this year, possibly under a rig-sharing setup with another operator. The company will likely need the rig for a six-month period to drill both exploratory wells, with the option of a third well – a horizontal well at Springs Road – depending on the initial vertical well results.

Several other UK-based operators are also pushing forward with shale exploration. Cuadrilla is developing an exploration site at Preston New Road in Lancashire, England, with drilling anticipated to begin this summer. And INEOS Shale, an offshoot of petrochemical company INEOS, recently submitted two planning permit applications for shale gas development in Derbyshire, in the East Midlands. Well depths are anticipated to be approximately 2,500 m, with the goal of extracting a core sample of shale rock for analysis of the rock structure and gas content.

“That would be the start of quite an intensive exploration drilling program for INEOS,” Mr Taylor said. “They’re very keen to use shale gas in the UK for their chemical manufacturing plants instead of having to import it from the US.”

A workover rig conducts recompletion operations at IGas’ Welton conventional site, in England’s East Midlands region, which is made up of six fields

Over in North Yorkshire, Third Energy will begin test fracking on its existing Kirby Misperton well, above the Bowland Shale that runs under northern England. The well was initially drilled to assess the field’s gas reserves, and subsequent analyses have demonstrated that the deep Bowland section is a hybrid unconventional resource consisting of potentially productive sandstone and shale. The test-frac will target five geological layers and will deliver flow test data to better understand the region’s shale gas resources, according to Mr Taylor.

Testing early flow rates is critical for assessing the production potential and commercial viability of the region’s unconventional resources. The British Geological Survey, in association with the Oil and Gas Authority (OGA), have completed shale gas resource estimates for several areas in the UK. For instance, the Bowland Shale could have between 822 trillion cu ft (tcf) and 2,281 tcf of shale gas in place, while the Jurassic shale of the Weald Basin could have between 2.20 billion to 8.57 billion bbl of shale oil in place. These numbers represent the amount of gas estimated to be in place, not necessarily the amount that is extractable.

Well maintenance is conducted at Folly Farm, one of IGas’ conventional drill sites.

There are still multiple hurdles to be overcome before large-scale fracturing will take off in the region. For instance, the planning process in the UK is slow and cumbersome, whether hydraulic fracturing occurs or not, according to Mr Taylor. Operators need to obtain planning permission from the local authority, environmental permits from the environmental agency, approval from the HSE and consent to drill from the OGA. “It’s taking companies a lot longer than it should take to get sites through the planning system,” Mr Taylor said, noting a 16-week process often ends up taking over a year. For hydraulic fracturing operations, companies must also comply with requirements for environmental impact assessments and infrastructure.

Public opinion is another remaining hurdle, with opposition toward hydraulic fracturing still prevalent. However, that could change with better understanding of how fracturing works, as well as recognition of the importance of shale and other unconventional resources. Approximately 84% of homes in the UK rely on an extensive gas network for heating, Mr Taylor said, and as offshore production declines, the UK is having to import increasing volumes of gas to meet demand.

For its part, IGas has established community liaison groups to actively facilitate dialogue with the local communities in which it operates. These groups meet regularly to address specific projects and address local concerns.

On an industry level, UKOOG pointed to its Community Engagement Charter, announced in June 2013, in which the industry publicly committed to give £100,000 per exploration well to the immediate community in which hydraulic fracturing takes place. Payments will be made when the Secretary of State issues consent permission for a hydraulic fracturing procedure to take place. Further, 1% of revenues from the production will be given to the local community. Mr Taylor said the industry recognizes that such incentives are critical for encouraging shale drilling support in the UK, which grants mineral rights to the Crown rather than to the landowner.

Alongside the industry, the UK government is also seeking ways to ensure that communities hosting shale developments benefit. A shale wealth fund, still under consultation, is being developed in the north of England that would invest 10% of all taxes resulting from shale production into communities affected by drilling.

If efforts to catalyze the shale market are successful and unconventional activity is sustained for the next two to three years, the UK may need to bring in additional rigs to supplement its current supply, likely from other parts of Europe. “I think you’ll see a real new and exciting industry in the UK take off. I’m quite confident about that. It’s just about getting through the sticky path that we’ve had over the past few years,” Mr Bone said. “This is going to be more of an evolution than a revolution. It will take a natural course as we start to drill more and more wells as activity ramps up. Rigs and service equipment will naturally come into the sector.”

In particular, he hopes to see more rigs with 7,500-psi capability and a smaller footprint. The UK industry will also look to pad drilling and rig walking technologies, which have been critical in lowering costs in the US.

KCA Deutag’s T-700 is a Euromatic rig designed to meet stringent European requirements on noise reduction, transportation load sizes and environmental criteria. The rig was built to trip pipe in a fully automated sequence.

The right rig technologies needed

One company that believes it has the right technologies is KCA Deutag, which operates 55 land rigs globally. Although none of those rigs are currently working in the UK, President of Land Simon Drew said he’s closely following tendering activities in the country. “We’re not seeing a huge amount of unconventional opportunities yet, but everyone is aware of the push in the UK for unconventionals, and we have a rig fleet that’s very well suited for it,” he said.

Of KCA Deutag’s six land rigs currently located in Europe, two are what it calls EURO Rigs, which were designed to meet European requirements, including transportation load sizes, noise attenuation and environmental criteria. One of these EURO Rigs, the T-207, recently won a contract for the drilling of an unconventional well on the European side of Turkey. “It’s a short opportunity, but like all these projects, if they find something, then hopefully it will develop into a larger opportunity,” Mr Drew said.

The company also has a Euromatic rig, which is similar to the EURO Rig but features a higher level of automation. “The T-700 was built a few years ago for a contract with a major international oil company,” he explained. “There was a real push by both KCA Deutag and our client to design a rig of the future that trips pipe in a fully automated sequence.” The T-700 is now deployed in the Netherlands on a two-well geothermal drilling project – a burgeoning market for KCA Deutag. This follows on the heels of another contract award last year for geothermal drilling in Germany, which was for two firm plus four optional wells.

“This is the fifth contract in the geothermal market we’ve done in recent history, and we’re seeing more coming down the pipeline,” Mr Drew said, noting that its rigs can be configured to drill either oil and gas wells or geothermal wells with fairly minimal work. This means that the contractor will be able to continue tapping the geothermal drilling market even as the traditional oil and gas side starts to come back. “We’ve seen a big increase in tendering activity for the traditional oil and gas sector, so the market is definitely stronger than it was last year.” DC